Economics • Economic BasicsHard
In welfare economics, what does 'Arrow's Impossibility Theorem' demonstrate regarding social choice functions?
A. A complete and transitive social preference ordering can always be derived from rational individual preferences
B. No voting system can convert individual preferences into a consistent community-wide ranking while meeting basic democratic fairness criteria✓ Correct Answer
C. Market mechanisms automatically achieve Pareto efficiency without any government intervention
D. Monopoly pricing structures can be regulated to achieve zero deadweight loss
💡 Solution & Explanation
Kenneth Arrow's impossibility theorem proves mathematically that no rank-order electoral or voting system can simultaneously satisfy a set of seemingly reasonable fairness criteria, such as non-dictatorship, Pareto efficiency, and independence of irrelevant alternatives. Alternative choices misstate the theorem as a confirmation of democratic ranking or welfare efficiency. This theorem profoundly impacts political economy and social choice theory.
More Economics Economic Basics questions
- Evaluate the concept of 'Purchasing Power Parity' in international economics. What does absolute purchasing…
- What does the 'Quantity Theory of Money' suggest in its simplest form (Fisher's Equation of Exchange: MV =…
- What does a Lorenz curve graphically represent?
- What is measured by the 'Gini Coefficient'?
- In market structures, what defines 'Monopolistic Competition'?